Tighter regulation of equity index annuities is on a fast track with plans to advance three new standards and add four states to the project, according to Jim Mumford, first deputy commissioner with the Iowa insurance department.
Carriers in Iowa and Minnesota represent 67% of the market, says Mumford, and with the four additional states, this would rise to 87%.
During the spring meeting of the National Association of Insurance Commissioners, both Iowa and Minnesota insurance regulators launched an effort to increase product oversight of EIAs, fixed annuities that allow an investor to potentially participate in stock market appreciation.
The product is under scrutiny from the National Association of Securities Dealers, Washington, for points including commissions charged to contract owners.
Mumford says part of the project will focus on new standards that have been developed by the Insurance Marketplace Standards Association, Bethesda, Md. Those standards, he continues, cover three areas: needs-based selling or the suitability of products; disclosure; and agent training. (See sidebar.)
The standards would provide regulators with an additional tool, supplementing market conduct examinations, he says.
Work on an early warning system in which IMSA would inform regulators if it detected a potential problem is still under way, Mumford says.
When regulators are deciding when to conduct market conduct examinations, compliance with IMSA standards, including the new EIA standards, could help a regulator triage which companies needed to be examined first, according to Mumford.
If a company was IMSA accredited, and these standards were put in place, then there could be more confidence that the company was selling EIAs properly. At the March NAIC meeting, it was decided to start calling the product fixed indexed annuities to avoid confusion among the public.
Iowa and Minnesota also are working on developing fixed indexed annuity training for producers that would include four hours of EIA training plus any additional training on company-specific products that a carrier felt was necessary, Mumford says.
To get the training requirements ready, regulators still need to talk with vendors, he says, adding the hope would be to have training requirements in place by year-end and not wait until companies come up for their review by state regulators.
Producers would have to complete the requirements before they could be appointed by a carrier, he says.
Don Walters, senior vice president, general counsel and secretary with IMSA, says the standards create ‘best practices’ for the product and would be incorporated into the IMSA body of standards. The standards have been issued to the entire membership, the IMSA board has indicated support and that support will most likely become official when the board meets on June 21, he adds.
The issue of an early warning system remains open, says Walters. IMSA monitors potential problems for its own due process procedures, but providing an early warning system for regulators still is being reviewed, according to Walters.
The American Council of Life Insurers, Washington, and those working on the effort by Iowa and Minnesota are drawing both from work that already has been done on suitability and on disclosure, according to Linda Lanam, ACLI’s vice president, annuities and market regulation.
Regulators in these two states are trying to make compliance operate more effectively in daily practice, and ACLI is attempting to make compliance better so companies can improve what they do, she explains.
Both ACLI and regulators have kept each other informed on the other’s work, she says.